Prepping a Hard Turn South ~ The Risk Averse Alert

Tuesday, February 14, 2012

Prepping a Hard Turn South

No need to get breathlessly carried away anticipating the market's approaching, sharp turn lower, as the appointed moment awaits a pickup in volatility of sufficient degree to indicate big trouble is more likely imminent...


Once $VIX momentum turns positive (bottom panel) the market could be well-poised to nosedive sometime soon after. In the meantime additional evidence of increasing, underlying technical weakness likewise should materialize. So, looking over the immediate horizon it appears the market remains some days away from a hard turn south...


The above chart of the NYSE Composite was presented on Friday. To it a prospective Elliott wave count has been added, as well as a near term projection drawn.

You might have noticed the "rising wedge" drawn last Friday, marking the NYSE Composite's advance from late-June 2010 bottom to early-February 2011 top. Even at the time it was unfolding, long-time readers will recall this so-called "special" Elliott wave form was on my radar. Immediate developments subsequent to its formation, though, seemingly diminished its probability. Now, however, the possibility appears back in play.

Supposing that, wave (a) of B off March '09 bottom took the form of a 5-3-5 "zig-zag," wave (b) of B, then, likely will take the form of a 3-3-5 "flat," this on account of the Elliott Wave Principle's "alternation guideline." So far, wave a of (b) of B has completed (itself, taking the form of a 3-3-5 "flat," ending early-October 2011), while wave b of (b) of B currently is unfolding (taking the form of a 5-3-5 "zig-zag," again satisfying the Elliott Wave Principle's alternation guideline).

Well-established resistance against which the NYSE Composite presently is contending further raises prospect that, the 5-3-5 "zig-zag" forming off early-October 2011 bottom is nearing its end. This zig-zag's "c" wave (forming since mid-December) finds the NYSE Composite index's coincident momentum (bottom panel) falling short of the same coinciding with the "a" wave off early-October bottom. Oddly enough, this same fading momentum condition was displayed during formation of wave c of (a) — the "rising wedge" off late-June 2010 bottom — in relation to wave a of (a) preceding it. Something of a significant trend, it appears, in the ongoing development of an Elliott corrective wave off March '09 bottom. All the more, then, could resistance at hand prove insurmountable.

Fast Money
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